Comments on: Long Loans Make Sense

When money is as cheap to borrow as it has been, it seems foolish not to take the longer loan and keep the money in the bank, my last new car loan was 1.25% on a 6 year loan, the vehicle is in the last 2 years of the loan with 46,000 miles on it and cleans up like new..........

It depends on how long you tend to keep a car and how many miles you put on it.

For long-term ownership and modest annual mileage, like your case, then a very cheap long-term loan makes more sense than paying cash or making a large down payment.

But if drive almost 30k miles/year like I do, then a 6-7 year loan doesn't make sense. I would hit the expensive maintenance zone that starts around 100k miles with more than 2 years on the loan meaning I am payng for extra maintenance plus the car payment. Or, if I wanted to trade to a new car, mileage related depreciation could mean I still owed more than the car was worth.

And for readers of this magazine of course there is being able to afford something cool like a Porsche-unfortunatly even at 84 months the c8 corvette is just out of reach for me-I would gladly go for a 100 month loan if that meant payments below 800 a month- because the upside of lower payments and a longer loan period is that you can save more for retirement.

Higher payments and a shorter loan period can be penny wise and pound foolish if it means you can contribute less to your 401k and thus have less to retire on.

because the upside of lower payments and a longer loan period is that you can save more for retirement.

You realize that you're still paying the same amount of money for the car, right? Regardless of how long the loan is for? If it's shorter, you pay it off quicker, and you can save more for retirement then...

You realize that you're still paying the same amount of money for the car, right? Regardless of how long the loan is for? If it's shorter, you pay it off quicker, and you can save more for retirement then...

Alas, the american education is showing its rewards...

If anything, having a longer loan just means more interest payments which the financier will be more than happy to accept. This is why one shouldn't use monthly payments as a starting point when deciding financial decisions.

And for readers of this magazine of course there is being able to afford something cool like a Porsche-unfortunatly even at 84 months the c8 corvette is just out of reach for me-I would gladly go for a 100 month loan if that meant payments below 800 a month- because the upside of lower payments and a longer loan period is that you can save more for retirement. Higher payments and a shorter loan period can be penny wise and pound foolish if it means you can contribute less to your 401k and thus have less to retire on.

If you can swing a zero or very low interest loan (<2%), then maybe you can indulge in that emotional purchase. That cash you are saving should do better if you invest it in a retirement account.

"And having [a new car] sends out good vibes about your standing in America."

"But when it comes to showing off one’s prosperity, even in the 21st century, nothing beats a shiny new car."

These seem like really bad reasons to spend thirty thousand dollars. Or even twenty (and few will be impressed by a new $20k car.) But that's just my opinion. Maybe it's because I'm an engineer, so I have less social awareness, but I don't give a flying f--- what other people think of my car. Miatas are girly and gay, wagons are lame grandpa cars. I've heard them all. But I bought the cars for myself, not anyone else. If you can stop caring about other people judging your material possessions you will find it frees your mind up to worry about other, better things. You'll be happier and have a lot more money too. Which you can use to spend on something you really want. Or not, because the choice is yours.

"According to The Wall Street Journal, only 18 percent of American households in 2016 had adequate liquidity to afford a new car. So plenty of these long loans are going out on a financial limb to swing the payments. And when a loan runs 84 months, the new is going to wear off long before the money is paid back. That means many owners will trade in a car they still owe on and sometimes recklessly roll over the unpaid balance into a new loan. Do that a couple of times and your next Versa loan runs $600 a month for seven years. Not surprisingly, defaults are on the rise."

In my opinion, this is honestly the only thing worth noting from the article. With the exception of a few very limited production cars, new vehicles are one of the worst purchases most of us can make. When the economy is good, it's easier to rationalize a splurge for something new and shiny, but I swear people seem to think this time is different (again) and that the economy will keep humming along indefinitely. Look at all the debt we're carrying around: over a trillion in auto loans, over a trillion in credit card debt, well over a trillion in student loans, not to mention mortgages at nearly nine trillion (which is higher than the 2008 peak) and other things like that. Maybe it's the natural saver in me, but I can't help thinking that everything is going to catch up to us soon, and those who have so much money tied up in all these loans are about to get hosed.

Cars, for the most, are emotional and not rational decisions/purchases. I think this line sums up the article.

There are good, valid reasons why you would want to buy or lease a new car. But most of the time it is emotional, I deserve it, if they can afford it I can too, jealousy, cultural or simply a status symbol.

But hey, look at your life and how many of your (daily) decisions are based on your (current?) emotional stage and not cold-hard-unquestionable-logic. You would be surprised. A lot of industries are built on this, including the automotive.

Leasing is the way to go on new cars, even better on a demo or CPO. You transfer the "extreme damage" potential of a crash/collision to the manufacturer, you are generally under warranty the entire term, you pay only for the depreciation that occurs (and most times less if the residual is too high) and many dealers can sell you scheduled maintenance programs upfront - which are a bargain. Your out of pocket will be completely known without surprises and in three years you'll get a new car.

Most households don't have the $$ to pay cash for a car, any car. Anything decent to hold more than two people, for longer than a rare 2 hour trip is going to cost at least 8-$10,000. That's a lot of cash to put out all at once. So if a family of 4 has saved around $15-20k in the bank and they contribute 10 or 11,000 for a car, that doesn't leave a lot left over for savings if something goes wrong. On the other hand, a new car that costs $30,000 and has a full warranty with $5000 down and a trade worth a few thousand.

That payment is 372/ month @2.9% for 72 months or $429 @ 1.9% for 60 months. Which is a lot better, especially if your A/C in your house breaks and you have to spend $3k to get it fixed. It feels a WHOLE lot better to know you have $12 to $17,000 left in your bank after fixing your house instead of $2k to 7k left.